As you may know, I lost control of the Board of Carver many long years ago Ã¢â‚¬â€œ 1987 to be exact. I became only a figurehead at the company I founded, and after watching the actions of the Board from up close (more on this later), I decided enough frustration was enough and I left. Since then IÃ¢â‚¬â„¢ve watched from afar as a once proud company has gone down. As the years trolled by and the companyÃ¢â‚¬â„¢s valuation trickled away, I made it clear that I was always available to help. I repeatedly asserted that I could stanch the losses in excess of $3,000,000 per year and put the company on solid footing. I shared my plan, yet the Board wanted nothing to do with me. I was persona non grata. I was the Evil Founder. In the meantime, I founded a new company, Sunfire, salted it with two inventions and a small capital infusion, and off it took.

SunfireÃ¢â‚¬â„¢s growth has been strong, with sales revenue nearly doubling each year. Ditto for earnings. If all goes well, and thatÃ¢â‚¬â„¢s a big if, I intend to combine Sunfire and Carver approximately 15 months from now, thus forging a larger and stronger public company. (Sunfire is at this time privately held.)

Back to Carver. By the end of 1998, Carver had spent all its money and then some. Carver Corporation reminded me of the 1950Ã¢â‚¬â„¢s science fiction movie in which an H-bomb has been dropped on New York. What used to be a beautiful city was shown with only the wind blowing through a dusty and empty town, and only the occasional tumbleweed rolling along deserted streets. No cars, people, or anything. Empty! This was the state of affairs at Carver when the Board of Directors finally called me. Carver Corporation literally had a mere seventeen dollars in the bank. They had managed to develop a negative net worth of over $1,000,000. I visited Carver and found nobody home. The assembly line had been shut down and the workers had gone. Carver hadnÃ¢â‚¬â„¢t been able to pay salaries. There were empty desks, empty cubicles, blackboards with writing on them, and no one around. It was as if everyone had just left on a moment's notice. My Carver was a thriving, bustling place. This was surreal.

I was witnessing the complete and unmanaged collapse of the company, like an imploding star, into an uninhabited black hole. Carver had no money, no employees, no plan, no technology, and no manufacturing. Carver did have roughly $1 million in lawsuits, $1.6 million in unpaid bills, and a practically nonexistent Dealer network. Through a series of disastrous sales and marketing tactics, Carver had angered its Dealers, who had resigned the line in droves. Carver retained a few factory Representatives in name, but these were ineffective and without action. The primary lending bank had informed Carver it would seize all remaining assets unless the outstanding loan balance was immediately paid in full. I was informed the landlord was in the process of acquiring a court order allowing him to padlock the building. I knew Carver didnÃ¢â‚¬â„¢t have a legal leg to stand on, and the landlord would indeed prevail and shut the doors. The Board asked me to step in and save Carver. I jumped at the chance, and put my years of passion and experience to the task.

Those years have taught me that at a minimum, a Board of Directors owes a company a capable and competent leader. In my opinion, CarverÃ¢â‚¬â„¢s Board failed miserably in this regard by repeatedly appointing leaders with absolutely no audio industry experience. As incredible as it seems, after each CEO would in turn fail at the job, he was then given a seat on the Board of Directors! Ultimately, the Board was almost entirely comprised of former failed Carver CEOs! Decisions at the very top of the ladder were being made by men who had failed to pull the company out of its downward spiral. Unbelievable! All I could do was watch from afar as decisions made in ignorance and arrogance relentlessly hammered your company into the ground. Forgive me, for I digressÃ¢â‚¬Â¦

To begin, I quickly cut a deal with the bank, paid off the debt, and effectively became the secured creditor for everything Carver owned. Every computer. Every table. Every pen and pencil. Indeed, every roller track, power tool, assembly line, jig, fixture, copy machine, all assets including the patents, trade marks, and the very name of the company. We got word that the landlord had received his court order, effective on the first of the coming month Ã¢â‚¬â€œ just days away. My Sunfire employees and I rented trucks, leased numerous storage sites throughout the area, and cleared space at Sunfire in preparation for a very hurried move. During the course of several arduous days and nights, we loaded everything up and moved it all out. You can believe that Carver again has a responsive leader, and one who truly cares. IÃ¢â‚¬â„¢m back. Carver now has a fighting chance.

Prior to doing all this, I signed an agreement with the Board of Directors (see "The Operating Agreement"). Inked just prior to the Consumer Electronics Show, this agreement galvanized SunfireÃ¢â‚¬â„¢s engineering department. We designed five new products, including two brand new technologies and one clearly in a class by itself through the use of existing Sunfire technology. We worked around the clock Ã¢â‚¬â€œ from the crack of dawn to late in the morning Ã¢â‚¬â€œ night after night, day after day, and finished just in time to go to the show. We showcased five new products sporting the Carver Logo. Our goal was to generate excitement for the New Carver Corporation, and to sign up 100 new retail Dealers. It was also our intention to sign up 18 new factory Representatives at the top level of the new revitalized sales network for Carver products.

As we all know, trust is something that is earned slowly and is difficult or impossible to regain once lost through an unfaithful act. When a company is placed in what I call Ã¢â‚¬Ëœthe penalty boxÃ¢â‚¬â„¢ for such a loss of trust, it often remains there indefinitely. At best, itÃ¢â‚¬â„¢s very difficult to get out of this Ã¢â‚¬Ëœbox.Ã¢â‚¬â„¢ We fully expected the Dealers would be extremely wary of the Carver brand. WeÃ¢â‚¬â„¢re proud of the trust Sunfire Dealers have in us, and we knew that they would at least listen. Carver had lost the trust of its dealers, and in turn lost its way. We had much work to do.

We asked Dealers to look at the new products and talk with us. To our great pleasure, the Dealers loved the products. On the basis of the new products and my personal commitment to the Dealers (most of whom IÃ¢â‚¬â„¢ve known for many years), their wary attitudes faded significantly. I gave them a solemn pledge, "Even though Carver used to be bad, it will now be good." One by one, we managed to sign up 100 Dealers Ã¢â‚¬â€œ exactly our goal. We also signed up an entire factory Representative network. This new network of Dealers and Representatives is simply waiting for the new designs to be finished, put into production, and distributed.

WeÃ¢â‚¬â„¢ve replaced CarverÃ¢â‚¬â„¢s dysfunctional infrastructure with the healthy corporate systems in place at Sunfire. We have an exceptional sales force, a world-class engineering department, and above all, new technologies. Sunfire has assumed all the functional and operational elements for the Company. Everett Audio Repair, an independent repair shop in Everett, Washington, has assumed responsibility for warranty service. Things are looking up for Carver. Carver now has Dealers and factory Representatives who are firmly committed. Carver now has new technology, and hope to go with it.

ItÃ¢â‚¬â„¢s been a wild ride for all of us. WeÃ¢â‚¬â„¢re packed to the gills with twenty years worth of Carver stuff sitting around everywhere. It's like a submarine ready to put out to sea; one canÃ¢â‚¬â„¢t even walk through the isles because there are so many stores, provisions and other gear. Carver was once following a death spiral to its doom, and now it isnÃ¢â‚¬â„¢t. We have a chance. ThatÃ¢â‚¬â„¢s where we are today.

Sincerely, Bob Carver

CARVER ANNOUNCES AGREEMENT WITH BOB CARVER
SNOHOMISH, Wash - Feb. 1, 2000 - Carver Corporation today announced that it has executed an agreement with Robert W. Carver, its founder, Chief Executive Officer and Chairman of its Board of Directors, and with Mr. Carver's privately-held Sunfire Corporation for Sunfire to:

(I) direct the development, manufacturing, marketing and distribution of a new line of products for the home and car under the "Carver" brand name that incorporates certain new technologies,
(ii) establish a new manufacturer's representative and independent dealer network, in order to rebuild Carver Corporation as a dominant force in the USA as a manufacturer of consumer audio electronics, and
(iii) for Mr. Carver to assume full operational control of the Company pursuant to the operating agreement.

As consideration for such services, Mr. Carver will be granted an 80% ownership interest in Carver Corporation, subject to shareholder final approval. In addition, a repurchase option will be granted to the Company, which may be executed under certain specified conditions. As previously announced, the Company and Sunfire may merge within 18 months, again, subject to certain criteria and Mr. Carver's discretion. The shareholders of Carver Corporation would retain a 20% ownership interest in the combined entity following such a merger. The terms of the operating agreement and granting of ownership interest to Mr. Carver are subject to shareholder approval, and shall be presented in a proxy package in advance of a shareholder meeting to be scheduled as soon as practicable in early 1999.

In response to the execution of this operating agreement, Mr. Carver stated, "I am very excited to have this opportunity to rebuild the Company I founded so long ago, and am confident that the independent dealers will be receptive to Carver Corporation's new products. Sunfire and Carver products serve distinct segments of the market, and should complement each other extremely well. The Board of Directors and I share a desire to maximize value for all shareholders, and believe that the opportunity presented in my business plan will evidence this upon receipt of the proxy package that will be distributed to them"

From a Canadian distribution standpoint, Mr. Saxe Brickenden, president of the Evolution Group, a division of AC Simmonds & Sons, Carver's Canadian Distributor says, "I'm delighted with the outcome of the Carver & Sunfire negotiations." Mr. Brickenden says his 20-year association with Bob Carver, since the inception of Carver Corporation in 1978, has been a positive and prosperous one. "Bob Carver is an outside-the-box thinker and this situation is a classic example of what happens when a visionary is lost. And with the new deal, they have found the vision and direction again. I'm really looking forward launching our new products".

The Company also announced that its Chief Operating Officer, Fred Grund and one of its directors, James McCullough have resigned. Prior to Mr. Carver's arrival, the Company had previously announced certain other operating strategies, including distribution of products through the Internet, but was forced to seek alternatives due in principal to a lack of operating capital and a lack of new products and technologies.

Bob Carver recently introduced a number of new Carver-branded products including a 200-watt per channel five channel Dolby Digital/DTS receiver, a high pressure, high back-emf subwoofer for home theater, a 300-watt miniature (the size of a pack of cigarettes) amplifier for automobile subwoofers and two companion subwoofers. These were shown at the Consumer Electronics Show that was held in Las Vegas, Nevada earlier this month. Brickenden comments, "our demonstrations were dropping jaws throughout the Consumer electronics show. Bob's magic is back at Carver Corporation." Each of the products contains new technology; an exception is the receiver, and it stands alone in the marketplace as the most powerful five-channel receiver there is.

Forward Looking Statement Statements in this news release looking forward in time, including those concerning development and delivery of new products, are forward-looking statements which involve known and unknown risks, uncertainties and other expressed or implied by such statements. These risks include the effect of changing economic conditions, trends in the audio components market, product demand and market acceptance risks, and other risks including those described from time to time in the company's Securities and Exchange Commission filings and other communications.

CARVER FILES CHAPTER 11 BANKRUPTCY
SEATTLE, WA Ã¢â‚¬â€œ May 19, 1999 -- Carver Corporation today announced that on Wednesday, May 12, 1999 it filed a voluntary petition under Chapter 11, in United States Bankruptcy Court for the Western District of Washington. The case number is 99-05793.

The cause of the filing was an accumulation of unpaid debt and resulting legal actions filed by creditors. These actions created the prospect of an inequitable distribution of payment to creditors and prevented the Company from being able to operate as a functioning business entity. In October of 1998, the Company ran out of working capital and laid off the remainder of its workforce. Subsequently, at the invitation of the Board of Directors, Robert W. Carver, the founder of the Company and former CEO, stepped in to take over.

The Board of Carver Corporation found it necessary to seek protection under federal bankruptcy laws in order for the Company to move ahead and reestablish itself as a viable entity in the marketplace. The Company intends to reorganize for the long-term success of the Carver brand name, profitability for shareholders and quality audio product for its faithful customers.

CONTACT: Carver Corporation, Bob Carver, (425) 335-1978

Robert H.Lever (November 2001): Contact Carver Service (now a part of Sunfire Corporation, Bob Carver's new Company at +1 (425)335-4748. They can provide service or schematics on most ol Carver Models, even some Phase Linear.

WOODINVILLE, Wash.--(BUSINESS WIRE)--Sept. 22, 1998--Carver Corporation announced today that Bob Carver has agreed to act as the Company's Interim CEO pending the finalization of the definitive agreement between the Company and Bob Carver's privately held Sunfire Corporation by which Sunfire will direct the design, manufacture, and marketing of audio products on behalf of Carver Corporation, utilizing certain of Bob Carver's proprietary and most recently patented audio technologies.

The Company also announced the appointment of Fred Grund as Chief Operating Officer. Mr. Grund has extensive experience in the consumer audio products industry. Most recently, Mr. Grund was CFO of Virgin Interactive Entertainment, a division of Viacom Corporation. Stationed in London, England, Mr. Grund was in charge of Virgin's overseas operations. From 1992 to 1995, Mr. Grund served as the CFO and COO of the Harman Consumer Group, a $500 million division of Harman International, Inc. (NYSE:HAR). Prior to 1992, he was CFO and COO of JBL International, Inc., a Harmon International company. Raised and educated in Chicago, Illinois, Mr. Grund graduated from Roosevelt University.

Commenting on the appointment of Mr. Grund, Bob Carver said, "We are so pleased to have Fred Grund join our team. He brings the right mix of experience and business savvy to help us rebuild this company and add value to our stockholders."

For almost 20 years, Carver Corporation has been one of the most recognized brands in consumer audio. The Company designs, develops, manufactures, and markets hi-fidelity audio and home theater products.

____________________________________________________________

Carver Corp. has filed for Chapter 11 bankruptcy protection after stringing together years of losses.

The manufacturer of high-end stereo components has sought shelter from creditors to avoid collapsing under the weight of $1.8 million in total liabilities. Publicly traded Carver, based in Snohomish, claimed assets of $913,000 and a thinned staff, less than 20 employees, according to papers filed in U.S. Bankruptcy Court in Seattle.

It's uncertain whether Carver, which has a long history of financial troubles, will attempt to reorganize. Donald Bailey, the Seattle attorney representing Carver, offered no comment on the stereo manufacturer's plans.

Attempts to reach the company at its offices in Snohomish produced only a recorded message: "Carver Corp. is currently closed while undergoing management and directional changes."

Carver has not filed its annual report for 1998 with the Securities and Exchange Commission. Ordinarily, a public company has 90 days to file its annual results after the close of its fiscal year. In 1997, the manufacturer posted sales of $11 million.

The debtor's largest creditors include Moss Adams, the Seattle-based accounting firm, Elite Enterprise Co. in Bellingham, Future Electronics in Bothell, Kent Electronics in Redmond and Sytech in Spokane. Carver estimated its total number of creditors between 100 and 200 in its Chapter 11 filing dated May 17.

This decade has been trying for Carver, which has seen a revolving door of top management, sagging sales and increasing losses. In the early '90s, the company went through four presidents in four years and posted losses on annual revenues that ranged between $24 million and $30 million. The corporate headquarters have moved from Lynnwood to Woodinville to Snohomish.

In 1995, Carver employed more than 150 people. That count has dwindled to fewer than 20, unusually small for a publicly traded company. Approximately 425 stockholders own the company's 10,000 shares of common stock.

A creditors meeting has been scheduled for June 16. U.S. Bankruptcy Court Judge Samuel Steiner will preside over Carver's case.

_____________________________________________________________

On Jan. 15, 2004 Phoenix Gold International, Inc. announced its acquisition of the marketing assets of Carver Corporation, including the Carver name Ã¢â‚¬â€ along with plans to actively rebuild the once highly regarded Carver brand, beginning with a full line of new consumer and professional audio products.

ELANÃ‚Â® Home Systems, a leading manufacturer of award-winning Multi-Room audio/video and home control systems, announced today that close sister-company Sunfire Corporation, an innovative designer and manufacturer of high-end audio/video components, home theater solutions, and subwoofers, will actively participate in the companyÃ¢â‚¬â„¢s upcoming TRIO 2007 Dealer Summit.

[ClickPress, Tue Mar 27 2007] ELANÃ‚Â® Home Systems, a leading manufacturer of award-winning Multi-Room audio/video and home control systems, announced today that close sister-company Sunfire Corporation, an innovative designer and manufacturer of high-end audio/video components, home theater solutions, and subwoofers, will actively participate in the companyÃ¢â‚¬â„¢s upcoming TRIO 2007 Dealer Summit. The announcement was made today by Bob Farinelli, ELAN's President and CTO and President of Sunfire Corporation.

Sunfire and ELAN are particularly close sister-companies, as they share Sales and Support organizations, and often combine their marketing efforts when appropriate to benefit Dealers they have in common. SunfireÃ¢â‚¬â„¢s participation in ELANÃ¢â‚¬â„¢s 2007 TRIO Dealer Summit will include new product and live home theater demonstrations throughout the gathering. Also, Sunfire will present fundamental and relevant courses on luxury and high-performance product selling.

Ã¢â‚¬Å“The value of merging the ELAN and SunfireÃ¢â‚¬â„¢s powerful resources lies in the resulting technologies, programs and efficiencies created, all of which benefit to our mutual Dealers. TRIO is the perfect place to see how our two Companies are maximizing the synergy live and in action together. At this exciting forum our Dealers will experience the combined magic of whole-house audio/video and high-performance theater that this unique partnership offers,Ã¢â‚¬

yeah, got on a little kick of digging for info on Carver Corp last night.
I knew most of this already, but I don't think many people on the forum have as many details from when Bob left the co. and what really happened with the shareholders.

It's still sad knowing he would probably still be putting out new Carver gear today, if it weren't for them.
Don't get me wrong, Sunfire is an awesome line, but I would still rather see his name on the equipment. His branding was and still is a major selling point. I know Sunfire has a very strong following, but Carver's was even larger I think (back in the day). I would love to have seen Carver Corp. have started a 4th line, and to fill the gap, in their lines. Home, Pro, Car, and Elite (sunfire quality).

Makes you wonder what Carver Corp. would be today....
Bunch of dumbasses, running it in the ground. How could they expect to keep Carver Corp. alive without the genius designing the equipment?? Sounds like someone's heads were getting too big, and then reality set in. What a fatal move on their part.

I know; anymore, it's not enough to make millions, everyone wants to make BILLIONS or more. When the money whores get involved, everything turns to $h!t.

Reminds me of Opryland, a nice little family theme park they used to have in Nashville, TN, near the airport (right beside the "new" Grand Ole Opry). It turned a pretty good annual profit in the millions and had a ton of visitors every year, but I guess some investors thought they'd be happier with billions+. So they closed the entire thing down and bulldozed it all over to make a high-end mall called Opry Mills. Everyone calls it "Shopryland" now....the crap there is outrageously expensive.

Statements in this report covering future performance, developments, expecta-
tions or events, including the discussion of the Company's strategy, product
development and introduction plans and various statements concerning the
Company's expectations for its growth and for the consumer electronics indus-
try and generation of additional working capital, constitute forward-looking
statements which are subject to a number of known or unknown risks, uncertain-
ties and other factors which might cause actual results to differ materially
from stated expectations. These risks and uncertainties include product devel-
opment or production difficulties or delays due to supply constraints, techni-
cal problems or other factors; technological changes; the effect of global,
national and regional economic conditions; changes in consumer preferences;
the impact of competitive products and pricing; changes in demand; increases
in component prices or other costs; inventory risks due to shifts in market
demand, product obsolescence or other factors; and a number of other risks in-
cluding those risks and uncertainties described under the caption "Risk Fac-
tors" in Part I of this report and those identified by the Company from time
to time in other filings with the Commission, press releases and other commu-
nications. Although the Company believes that all forward-looking statements
are reasonable, there can be no assurance that actual results, achievements,
performance or developments will not differ materially from those expressed or
implied by such forward-looking statements.

Carver products are positioned in the middle and upper price range of most
audio components. The Company offers technically innovative audio/video prod-
ucts for the home entertainment market that deliver affordable "audiophile"
quality. It targets its distribution channels toward knowledgeable consumers
who insist on high quality products which offer superior features and perfor-
mance.

During 1996, the Company's strategy was to update its products, to broaden
its market presence and return its operations to profitability. The Company
re-engineered every key product category with the introduction of new multi
and two channel amplifiers, pre-amplifier/tuners and a receiver. The Company
also took several steps to restructure its retail network.

The Company was incorporated in the State of Washington in 1978, and its ini-
tial public offering occurred in May 1985. Its Common Stock is traded on the
Nasdaq National Market under the symbol CAVR. The Company is located at 20121-
48th Avenue West, Lynnwood, Washington 98046. Its telephone number is (206)
775-1202.

INDUSTRY OVERVIEW

Carver estimates, based on market industry surveys, the U.S. consumer (in-
home use) high-fidelity audio market (electronics of all types including por-
table and mobile audio) to be currently in excess of $3.6 billion per year at
the factory selling price.

Home audio/video systems vary widely in design, quality and price from inex-
pensive systems having relatively low-quality sound reproduction to expensive
systems designed for the high-fidelity sound enthusiasts who demand that their
systems duplicate, as closely as possible, the sound of a live performance.
System prices range from under $100 to well over $100,000. Carver considers
itself positioned between the middle segment and the extreme high-end compa-
nies. It estimates the total size of the market for separate audio components
to be around $2 billion annually. A Carver system, including loudspeakers,
ranges in price from approximately $3,200 to approximately $7,300.

RECENT DEVELOPMENTS

PRIVATE PLACEMENT OF SECURITIES

In the second and third quarters of 1996, the Company sold 1,411,764 shares
of Series A Cumulative Convertible Preferred Stock (the "Preferred Stock") and
issued five-year warrants (the "Warrants") to acquire up to 300,000 shares of
the Company's Common Stock pursuant to a Stock Purchase Agreement (the "Agree-
ment") with Renwick Capital Management, Inc. and certain Renwick affiliates
("Renwick"). The Shares of Preferred Stock and Warrants are convertible into
1,711,764 shares of Common Stock, or approximately 46% of the current shares
outstanding. See Item 7 of Part II below.

The price of the Preferred Stock was $2.125 per share and each share of Pre-
ferred Stock is convertible at any time at the option of the holder into one
share of Common Stock. The Company received gross proceeds of $3,000,000 from
the sale of the Preferred Stock.

3

The holders of the Preferred Stock are entitled to one vote for each share of
Common Stock into which the Preferred Stock is convertible and to elect two
representatives to the Company's Board of Directors. By virtue of the number
of votes to be controlled by Renwick and its affiliates, their right to elect
two of the Company's five directors and the fact that various actions may not
be taken by the Company without the approval of the holders of at least a ma-
jority of the Preferred Stock, such holders may be deemed to have acquired
control of the Company.

The exercise price of the Warrants is $1.50 per share of Common Stock, if ex-
ercised from the date of the initial closing through the date two years from
the date of the initial closing, $1.75 for the next year, $2.00 for the next
year, and $2.125 for the final year, subject to certain potential antidilution
adjustments.

Renwick is a New York-based investment banking firm founded in 1994 which
specializes in the identification of undervalued growth companies exhibiting
the potential for an operational turn-around. Renwick actively supports its
principal investments through involvement in the industry and Wall Street pro-
fessionals familiar with turn-around situations.

SALE OF COMPANY'S MANUFACTURING FACILITY

The Company has entered into an agreement to sell its existing headquarters
and manufacturing facility in Lynnwood, Washington for approximately
$3,000,000 in cash, which would yield net proceeds of approximately
$2,800,000. The closing of this transaction in the second quarter of 1997 is
subject to satisfaction of a contingency related to an environmental audit,
which is expected to be completed by April 1, 1997.

PROPERTY CAUSALITY LOSS

On December 30, 1996, a Pacific Northwest snow storm temporarily interrupted
the Company's normal business operations and caused a roof section at its man-
ufacturing and corporate headquarters to collapse. The Company is insured for
losses caused by an interruption to its business and damage to its property,
and as a result no material losses are anticipated.

CUSTOMS AUDIT

Late in 1994, the United States Customs Service completed an audit of the
Company's import operations. The Customs Service found that the Company had
made late duty payments totaling $99,000 on tooling between 1989 to 1993. On
March 9, 1995, the Customs Service issued to the Company a prepenalty notice
indicating that it would assess a penalty up to approximately $400,000. The
Company has provided documentation to the Customs Service, and the Company
paid the Customs Service $50,000 in 1995 as an offer in compromise of the pen-
alty which was accepted by the Customs Service in May 1996 as full settlement.

PERSONNEL

Debra L. Griffith was elected Vice President of Finance and Chief Financial
Officer in July 1996. Mark A. Nygren was elected Vice President of Operations
in January 1997. See "Executive Officers of the Registrant" in this item.

Raj K. Bhatia and James R. McCullough, principals of Renwick, were elected
directors of the Company in June 1996 in connection with the Renwick
financings. See "Private Placement of Securities". Robert W. Carver resigned
as a director of the Company in August 1996, and Robert A. Fulton resigned as
a director of the Company in January 1997.

PRODUCTS

In 1996, five Carver products were named a Recommended Component by
Stereophile Magazine, one of the industry's most influential and prestigious
publications. This rating is based predominately on performance, with consid-
eration given to products offering exceptional value for their suggested re-
tail price. The Carver products earning Recommended Component rating were the
TFM-35x amplifier, AV-806x amplifier, Lightstar Reference amplifier, Lightstar
Direct preamplifier and the HTR-880 A/V receiver.

In 1996, two Carver products received "Product of the Year" awards from
AudioVideo International's Hi-Fi Grand Prix: the CT-23 preamp/tuner and TFM-
6cb amplifier. AudioVideo International is an influential trade publication in
both domestic and international markets. In addition, two more Carver prod-
ucts, the TFM-35x amplifier and CT-28v preamp/tuner, received "Special Recog-
nition" awards in their respective categories from AudioVideo International.

HOME AUDIO/VIDEO PRODUCTS

In recent years, Carver has concentrated its efforts on the growing market
for audio/video or home theater separates. The Company markets a home
audio/video component line of 18 products which include 5 two channel power
amplifiers, 2 multi-channel amplifiers, 4 preamplifier/tuners, 1 receiver,
2 preamplifiers and one model each of a tuner, CD changer, cassette deck and
loudspeakers. Manufacturer's U.S. Suggested Retail Price on the Company's
products ranged from $399-$2500.

An audio entertainment system typically includes a signal source such as a CD
player, cassette deck or radio tuner which outputs to a preamplifier that con-
trols the volume level, tone, and source switching. Specialized amplification
circuits in the preamplifier

4

convert input signal to a compatible format and feed it to the amplifier which
increases the signal strength to a level strong enough to drive loudspeakers.
An audio/video receiver accomplishes most of these functions in one box, but
the consumer is typically compromising performance to achieve compactness. Al-
though Carver offers a receiver it believes its strength lies in its separate
components which allow the consumer the flexibility to customize power and
features to suit their home acoustics and listening preferences. Separate com-
ponents also provide superior audio performance, improved reliability and more
upgrade options. The Company believes consumers select separates primarily by
power, accuracy or sonic superiority, features and price.

Until November 1995, Carver offered multiple lines of professional power am-
plifiers that covered a wide range of professional applications. The Company
discontinued sales of professional products in November 1995 in connection
with the sale of its professional product line to Phoenix Gold International,
Inc.

CARVER TECHNOLOGIES

Historically, the Company has identified certain fundamental limitations of
the stereophonic sound reproduction process and then developed innovative
electronic circuits or other technologies which address these limitations. In
recent years, the Company has developed technologies which it believes en-
hances the listener's enjoyment of audio/video or home theater components and
systems. The Company holds fifteen patents with respect to certain of the
technologies described below and licenses an additional technology. See "Pat-
ents and Trademarks." The Company's technologies include:

LIGHTSTAR(R) POWER AMPLIFIER TECHNOLOGY. The Company believes its Lightstar
Technology represents the most advanced power amplifier technology on the mar-
ket today. This technology offers performance advantages over current ampli-
fier designs in terms of current capability, the capability to drive any loud-
speaker load independent from voltage fluctuations from the AC power line and
effortless sound quality. The Company holds patents on its Lightstar technolo-
gy. The patents expire beginning in 2014.

MAGNETIC FIELD POWER AMPLIFIER(TM) TECHNOLOGY. Carver Magnetic Field amplifi-
ers are capable of delivering both high voltage and high current simultane-
ously into modern speaker designs which can swing as low as two ohms in cer-
tain frequency ranges. The patents relating to Magnetic Field Power Amplifier
technology are licensed by the Company from Robert W. and Diana R. Carver.

TRANSFER FUNCTION MODIFICATION TECHNOLOGY. The t-modification process allows
the Company to duplicate many of the sonic characteristics of very costly tube
amplifiers in solid state designs at a fraction of the cost.

CINEMA HOLOGRAPHY(R) AND SONIC HOLOGRAPHY(R). Using principles analogous to
those employed in producing visual holograms with intersecting laser beams,
the Company's Cinema and Sonic Holography technologies produce the illusion
that the musical program is being performed by instruments arrayed on a three-
dimensional stage. Cinema Holography also creates a much wider sound stage and
side images that are focused in specific positions. The Company holds two U.S.
patents relating to Sonic Holography which will expire beginning in 1999.

POWER STEERING(TM). Some of the most startling effects in a motion picture
are those that allow a sound to move from left to right or, even more impres-
sively, from left front to right rear such as a jet flying across a room.
These effects are made to happen by "steering" the levels of a given sound to
the various channels to achieve the desired image position at any given point
in time. Most power amplifiers have a clipping level on each channel that
doesn't vary significantly because only one or all channels are being driven
at the same time. This means that while one channel is driven to full power
the other channels are idling. Much of the capability of the power supply is
being wasted, just sitting dormant, while the dominant channel is taking just
one channel's worth of power. The Company's Power Steering Technology allows
the power amplifier to deliver its full rated power into all channels driven
simultaneously, and, as the directional cues in the program cause the signal
to be "steered" to a specific channel, focus a greater portion of the power
supply to the channel demanding the greatest output. This ability to provide
significant power gains into the most demanding channel on a continuous basis
or to all five chan-

5

nels dynamically results in greater authority, clarity and spaciousness that
is not available in conventional power amplifiers.

MAGNIFIED CURRENT AMPLIFICATION(TM) TECHNOLOGY. Using principles learned from
its Lightstar Technology, the Company has developed a multi-state hybrid power
amplifier design which can deliver more than twice the current of conventional
amplifier designs using the same power transistors. The Company's Magnified
Current Amplification Technology utilizes the full current capability of out-
put power transistors which maximizes both the voltage and current capability
available for loudspeaker load.

INFINITE DECORRELATION(TM). The Company's Infinite Decorrelation technology
was developed to maximize the surround space and directional cues from sur-
round sound channels for home theater applications. This technology eliminates
the lack of rear left or right separation for sounds that are placed behind
the listener in home theater applications and produces a much more realistic
and lifelike sound.

TOTAL DIRECT COUPLING(TM). As transistor power amplifiers incorporated de-
signs which eliminated output transformers, they required the use of stabiliz-
ing inductors which created colorations in the reproduction of the upper har-
monics of most instruments. The Company's Total Direct Coupling (TDC) Technol-
ogy allows the output circuits of power amplifiers to be directly connected to
a loudspeaker without the use of stabilizing inductor network and the associ-
ated sonic disadvantages. TDC allows the Company's amplifiers to be stable
into a variety of speaker loads.

BIDAC(TM). The Company's BiDAC Technology is utilized in the Company's digi-
tal to analog convertor which uses bitestream conversion for low-level pas-
sages (ones that typically contain the mid and high frequencies) and continu-
ous calibration multibit for the high-level passages (that typically contain
the high level low frequencies).

PATENTS AND TRADEMARKS

The Company holds fifteen domestic patents issued between 1980 and 1997 on
several of its technologies which are incorporated into a number of its prod-
ucts. See "Carver Technologies" above. Patents with respect to Sonic
Holography(R), ACCD and Flat Panel Speaker Technology have been issued by var-
ious countries.

Robert W. and Diana R. Carver personally own domestic and foreign patents on
the Magnetic Field Power Amplifier technology. The Company has a non-exclusive
license to use the technology which requires the Company to pay Robert W. and
Diana R. Carver royalties on sales of products incorporating such technology.

While the Company believes that the patent rights owned and licensed by the
Company are important and cover and protect adequately the Company's proprie-
tary rights in the patented technologies, there can be no assurance that any
current or future patents will prove valid. Moreover, the Company believes
that its growth, competitive position and future success are more dependent
upon technical expertise and marketing skills than on the ownership of patent
rights.

"Carver," "Cinema Holography," "Sonic Holography," and "Lightstar," are reg-
istered trademarks of the Company. Trademark registrations pending are "Great
American Sound," "GAS," "Ampzilla" and "Power Steering." The Company claims
common law rights to the following trademarks: "Digital Time Lens," "Magnetic
Field Amplifier," "Soft EQ," "KLW Audio," the "Amazing Loudspeaker," "Amazing
Loudspeakers" and "TAL".

SALES AND MARKETING

The Company markets its audio/video products in the United States primarily
through retail outlets, ranging from audio/video specialty stores to national
retailers of brand-name consumer electronics, serviced by 16 independent manu-
facturers' representative companies and the Company's sales and marketing
staff. The Company's dealers typically stock a broad variety of audio/video
equipment and may also carry automobile audio systems, televisions, video cas-
sette recorders and other consumer-oriented electronic products. The Company
seeks dealers who emphasize high quality audio systems and who are knowledge-
able about the characteristics of audio/video products. The Company's sales
and marketing department emphasizes dealer education programs and product lit-
erature to enable individual sales people to understand and explain to consum-
ers the superior price/performance features offered by the Company's products.
In order to maintain a high quality distribution system that is competitive
with those of other brands, the Company sells products only to dealers who
have signed dealer agreements reflecting the Company's distribution policies.

Purchasers of high quality audio equipment tend to rely on audio specialty
publications, the recommendations of their friends and acquaintances who are
audio enthusiasts and recommendations of and demonstrations by knowledgeable
sales people. Accordingly, the Company believes that the favorable reviews of
the Company's products that have been featured in such publications as Stereo
Review, Audio, Stereophile, Stereophile Guide to Home Theater, Audio/Video In-
teriors, Audio Adventure, Home Theater, and The $ensible Sound in addition to
the Company's general reputation for producing superior products are impor-

6

tant keys of its sales and marketing program. Domestic sales of consumer audio
products accounted for approximately 57%, 51%, and 83% of the Company's sales
in 1994, 1995 and 1996, respectively. Total Company sales of consumer audio
products were 71%, 60%, and 91%, respectively, for the same years.

Prior to mid-November 1995, the Company designed, manufactured, marketed and
sold a line of professional audio products. Worldwide sales of professional
audio products accounted for approximately 25% of the Company's sales in 1994
and 1995 and approximately 3% in 1996. From mid-November 1995 through December
31, 1996, the Company manufactured and sold certain professional sound prod-
ucts solely to the purchaser of its professional products line pursuant to a
Manufacturing Agreement entered into by the Company at the time of the sale.
The Company has fulfilled its obligations under this Agreement and expects to
make incidental sales of discontinued professional products in 1997.

OEM PRODUCT

Original Equipment Manufacturer (OEM) production accounted for approximately
1%, 8% and 1% of sales in 1994, 1995 and 1996, respectively. Most of the prod-
ucts which the Company sold as an OEM prior to 1996 were professional audio
products, and the underlying contracts for such OEM sales were included in the
sale of Carver's professional product line.

INTERNATIONAL SALES

The Company has a network of 49 distributors who provide retail sales cover-
age in over 50 countries. Foreign sales accounted for approximately 27%, 28%,
and 9% of the Company's sales in 1994, 1995 and 1996, respectively. Management
intended to allocate more resources in global marketing in 1996 in an effort
to increase its international revenues. Cash constraints in 1995 and 1996 pre-
vented the Company from allocating additional resources to the development of
products for its international markets and from marketing its existing prod-
ucts. The Company intends to introduce 12 new products for its international
markets in 1997. See "Risk Factors--Risks of International Business."

COMPETITION

The consumer electronics industry is intensely competitive. Many large and
small manufacturers offer audio systems which vary widely in price and quality
and which are distributed through a variety of distribution channels, includ-
ing audio specialty stores, discount stores, department stores and mail order
firms. The Company has chosen to concentrate its efforts on the segments of
the market served principally by audio specialty stores and a major national
consumer electronics retailer, Circuit City. See "Risk Factors--Concentration
of Accounts." In recognition of current market trends which show that consum-
ers are purchasing more electronics via direct mail, Carver products can now
be purchased through upscale direct marketing companies such as Cambridge
SoundWorks and Crutchfield.

In the home audio market, the Company competes mainly with Adcom, Parasound,
Marantz and Harman Kardon. Most of the Company's competitors have substan-
tially greater financial and technical resources than the Company. The Company
believes that its competitive position in the consumer audio components market
is enhanced by unique Carver technologies and features which have given the
Company strong price/performance, as well as brand recognition advantages. See
"Risk Factors--Competition."

PRODUCT RETURNS

From time to time the Company has accepted returns of unsold products from
its dealers. Historically, the financial impact associated with the return of
unsold products has been insignificant.

BACKLOG

The Company's policy is to maintain sufficient finished goods inventory to
fill orders within three business days after they are received. However, dur-
ing most of 1995 and the first seven months of 1996, the Company operated un-
der very tight cash constraints, and it's backlog rose somewhat higher than
normal due to the Company's deferral of the purchase of sourced product. Also,
the Company's backlog of orders may rise following major product introductions
as dealers place orders for the new products in excess of the number produced
in initial production runs or if an offshore supplier fails to make on-time
deliveries of product. During the second half of 1996, two of the Company's
overseas vendors were unable to deliver three new models on time. See "Risk
Factors--Dependence on Outside Manufacturers." Because of the Company's policy
of filling an order promptly after receipt, the Company does not view the
level of backlog to be an important index of future performance. The Company's
backlog of orders at January 31, 1997 was approximately $618,000, compared to
approximately $2,575,000 on January 31, 1996.

ENGINEERING, RESEARCH AND DEVELOPMENT

The Company recognizes that its future is dependent on its ability to intro-
duce products which incorporate technological innovation and advanced fea-
tures. See "Risk Factors--Technological and Product Obsolescence."

7

The modular amplifier design that the engineering group developed in 1996 has
been successfully introduced in five new amplifiers that have set new stan-
dards for the Company in performance, assembly, efficiency and reliability.
Three of the new amplifiers are multi-channel amplifiers which incorporate the
Company's Power Steering(TM) technology.

The engineering group has designed a two-channel amplifier, the A-220, which
will be manufactured by the Company and replace an existing two-channel ampli-
fier currently sourced offshore, representing a continuation of the Company's
strategy to return production to the United States.

The engineering group is also developing a modular digital processor design
which will be used in a new line of "Dolby Digital(R)" surround sound pre-
amplifiers/tuner and processors scheduled for introduction beginning in April
1997. The completion of these new designs marks the Company's continuing ef-
fort to bring the majority of development and production back to the United
States, not only in power amplification, but also in "small signal" components
that have for the last several years been developed for the Company by over-
seas suppliers.

The Company has developed three new home theater speaker systems that are
scheduled to be offered for sale mid-1997, including a LucasFilm THX(R) certi-
fied system. In addition, the Company plans to introduce at least one new ver-
sion of its ribbon loudspeaker product later this year that will feature an
improved design. The Company also plans to introduce new models of ribbon
speakers that will complete the ribbon line for high-end home theater applica-
tions.

Carver expects to release approximately 20 new and replacement products dur-
ing 1997. There can be no assurances that product development or introduction
plans will be accomplished on schedule or that the new products will be well
received by the market. See "Risk Factors--Dependence on Outside Manufac-
tures," "Economic Conditions" and "Competition."
The Company employs eight full-time technical personnel in its research, de-
velopment, engineering and product development organization. The Company also
employs temporary technical personnel to augment its product development team
as activity levels require. The Company's expenditures for engineering, re-
search and development in 1994, 1995 and 1996 were $1,164,000, $808,000 and
$711,000, respectively.

MANUFACTURING

During 1996, approximately 54% of the Company's sales were of products manu-
factured by third parties to the Company's specifications. The Company pres-
ently sources these products from five different suppliers located in the Far
East. The Company determines whether a product will be manufactured by the
Company or a third party principally on the basis of two factors: 1) the loca-
tion of the sources of parts and subassemblies, and 2) the cost relative to
expected volume of products to be manufactured. During 1995 and the first two
quarters of 1996, the Company was forced, due to cash restraints, to defer
purchases of sourced product and delay payment of certain of its vendors.
These actions resulted in interruptions in the availability of products manu-
factured by the suppliers. Availability of these products is also dependent on
the suppliers' continued cooperation and responsiveness to the Company's
needs. Should the Company be required to supplement or replace a supplier, the
Company believes that there are a number of alternate sources, although the
transition to a new supplier would probably involve added costs and delays.
The Company entered into a relationship with another supplier from whom the
Company expected to source at least two of its new products scheduled for in-
troduction in mid-1996. Availability of these key new products was delayed to
second quarter 1997 due to the continued inability of the supplier to manufac-
ture and ship the products on schedule. See "Risk Factors--Dependence on Out-
side Manufactures," and "Risks of International Business."
Carver's goal is to manufacture as many of its products in the United States
as practical. The Company is currently in discussions with other potential OEM
customers. However, there can be no assurances that these discussions will be
completed favorably or that any OEM business will result from these discus-
sions.

Carver is vigorously pursuing "Total Quality Management" (TQM), and "Continu-
ous Quality Improvement" (CQI) techniques in an effort to increase quality,
lower costs and add profitability. Carver will concentrate on value-added op-
erations where in-house manufacturing skills and process control are most
important.

Consistent with its commitment to quality, the Company maintains strict test-
ing procedures. All products, whether manufactured in the United States or by
OEM suppliers, are tested at their respective manufacturing facilities prior
to shipment. The Company retests products manufactured by OEM suppliers on a
statistical sample basis at its Lynnwood facility to monitor quality control.
A program to establish strategic partnerships with certain vendors has been
implemented to ensure timely delivery of quality raw materials, cost effective
pricing and creative value engineering between Carver and vendor engineering
departments.

The Company offers a three-year limited warranty on amplifiers, and loud-
speakers; a two-year limited warranty on preamplifiers, integrated amplifiers,
preamplifier/tuners, receivers and tuners; and a one-

On March 1, 1997, the Company had 84 full-time employees, of whom 51 were en-
gaged in production and customer service, 8 in research, development,
engineering and product development, 11 in general and administrative func-
tions and 14 in sales and marketing. None of the Company's employees is cov-
ered by a collective bargaining agreement. The Company believes its relations
with its employees are good.

EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Corporation who are not directors are listed in
the following table. A description of their occupations for the past five
years also appears below.

NAME AGE POSITION
- ---- --- --------
<C>
James Croft.................... 44 Vice President of Research and Development
Debra L. Griffith.............. 38 Vice President of Finance and Administration
Mark A. Nygren................. 34 Vice President of Operations
John P. World.................. 50 Executive Vice President and General Manager

Mr. Croft joined the Company in October 1992 as its Director of Product Re-
search and Marketing Development. He became Vice President of Marketing and
Product Development in March 1993 and Vice President Research and Development
in February 1995. From 1990 through October 1992, Mr. Croft was employed by
Dahlquist, Inc., a loudspeaker manufacturer, most recently as its Vice Presi-
dent of Research and Development. Mr. Croft is a Vice President of Definitive
Audio, Inc., a Seattle audio specialty retailer which he co-founded in 1975
and managed until 1985.

Ms. Griffith joined the Company in July 1996 as its Vice President of Fi-
nance. She became Vice President of Finance and Administration in January
1997. From 1983 to July 1996, Ms Griffith was employed by Teltone Corporation,
a telecommunications manufacturer, most recently as its Vice President of Fi-
nance and Administration. Ms. Griffith has been a Certified Public Accountant
since 1980, and she received her Bachelor of Arts in Business Administration
with honors in 1980 from the University of Washington.

Mr. Nygren joined the Company in February 1995 as its Director of Manufactur-
ing. Mr. Nygren became Director of Operations in February 1996 and Vice Presi-
dent of Operations in January 1997. From 1990 through February 1995, Mr. Ny-
gren was employed by Crane/Eldec Corporation, a manufacturer of power supplies
and other equipment for civilian and military aerospace customers, most re-
cently as its Manufacturing Manager. Mr. Nygren received his Master of Busi-
ness Administration degree in 1990 from Harvard Graduate School and Bachelor
of Arts magna cum laude in 1985 from Whitman College.

Mr. World joined the Company in February 1987 as General Counsel. Mr. World
is currently responsible for the internal operations of the Company. Mr. World
also provides management support for the Company's international sales activi-
ties. Since joining the Company in 1987, Mr. World has at various times been
responsible for the administration, credit, human resource, legal, order en-
try, day care and facilities departments. Mr. World received his Juris Doctor
in 1975 from the University of Puget Sound and his Bachelor of Arts degree in
Political Science in 1972 from the University of Washington.

RISK FACTORS

In addition to the other information contained or incorporated by reference
herein, the following factors should be considered carefully in evaluating the
Company and its business. Prospective investors in the Company are cautioned
that an investment in the Company involves a very high degree of risk. The
Company's ability to halt the deterioration of its results of operations and
financial condition and successfully implement its operating strategy is sub-
ject to a number of material risks and uncertainties. The contingencies and
other risks discussed below could affect the Company in ways not presently an-
ticipated by its management and thereby impair its ability to maintain or im-
prove its performance. A careful review and understanding of each of the risk
factors set forth below, as well as the other information contained in this
report, is essential for an investor seeking to make an informed investment
decision with respect to the Company.

DEPENDENCE ON OUTSIDE MANUFACTURERS

The Company is dependent upon outside manufacturers for production of several
of its products which represented approximately 54% of its sales in 1996. The
Company expects sales of products manufactured by suppliers to continue to ac-
count for over 50% of its revenue in 1997. In 1996, the Company was unable to
fill orders for three key products due to production delays experienced by the
off-shore suppliers of these products. These delays had a material adverse ef-
fect on sales in 1996. Any delay in obtaining products in the future would
likely have a similar impact. Unavaila-

9

bility of product due to production delay or for any other reason could have
an adverse impact on the Company's relationship with its key dealers, such as
Circuit City. In addition, products procured from offshore suppliers require
significant advance payment for tooling and non recurring engineering ex-
penses. Due to the significant nature of this investment, it is impractical to
have multiple suppliers for a single product. As a result, any delay in ob-
taining products may result in lost revenues to the Company until such time as
a transition to an alternate supplier can be completed. The Company believes
that there are a number of possible alternate suppliers who could manufacture
the Company's sourced product should it be necessary to replace an existing
supplier. However, production delays in 1996 demonstrate that the transition
to a new supplier can involve delays which occasion the loss or delay of sales
and added expenses.

POSSIBLE NEED FOR ADDITIONAL FINANCING

At March 21, 1997, the Company's immediately available sources of working
capital consisted of cash of approximately $50,000 and available borrowings of
approximately $2,600,000 under the Company's revolving working capital line of
credit.

The Company believes that its headquarters facility is larger than required
for its current operations and therefore represents an underutilized asset. As
a result, the Company has entered into an agreement to sell its existing head-
quarters and manufacturing facility in Lynnwood, Washington for approximately
$3,000,000 in cash, which would yield net proceeds of approximately
$2,800,000. The closing of this transaction in the second quarter of 1997 is
subject to satisfaction of a contingency related to an environmental audit,
which is expected to be completed by April 1, 1997. There can be no assurance
that closing of the sale of the Company's current headquarters facility will
occur. If this sale does not occur, the Company may be required to obtain ad-
ditional equity or debt financing. There can be no assurance that any such re-
financing or asset sales would be available when needed on terms that the Com-
pany finds acceptable. Any additional equity or debt financing may involve
substantial dilution to the interests of the Company's shareholders.

The exact amount and timing of the Company's working capital requirements
will be determined by numerous factors, including the level of and gross mar-
gin on future sales, payment terms achieved by the Company, timing of capital
expenditures and the occurrence of unanticipated expenses. However, the Com-
pany believes that its line of credit and anticipated cash flows from the sale
of the headquarters facility will satisfy the Company's projected working cap-
ital and capital expenditure requirements for at least the next 12 months.

RECENT AND CONTINUED OPERATING LOSSES

During the last four completed fiscal years, the Company has incurred aggre-
gate net losses of approximately $14,641,000 or $3.97 per share. There can be
no assurance that it will generate profits in future periods. The Company's
future operating results will be dependent upon a number of factors, particu-
larly those associated with the change-over of its product lines, the perfor-
mance of its suppliers, increased sales and margins, the control of overhead
costs, the ability of the Company to successfully identify and respond to
emerging trends in the consumer electronics industry, the level of competition
and general economic conditions. See "Business--Sales and Marketing" and "Man-
agement's Discussion and Analysis of Financial Conditions and Results of Oper-
ations."

CONCENTRATION OF ACCOUNTS; DEPENDENCE UPON RELATIONSHIP WITH CIRCUIT CITY

Late in 1995, the Company entered into a distribution arrangement with Cir-
cuit City, one of the largest retailers of consumer electronics in the United
States. Circuit City accounted for 33% of the Company's receivables as of
March 27, 1997. Due to anticipated pattern of purchases by Circuit City, the
Company anticipates that accounts receivable from this customer will continue
to be approximately the same percentage of the Company's total trade accounts
receivables. Sales to Circuit City were 41% of the Company's revenue in 1996.
While 1997 sales to this customer are expect to be similar, the Company's
experience with Circuit City is limited. Circuit City may not be able to suc-
cessfully market and sell the Company's products on an ongoing basis. Factors
which could effect the volume of sales by Circuit City include factors which
generally influence retail sales of electronic products. Dependence on a sin-
gle customer for a significant percentage of sales involves a number of risks,
including the risk that the Company's inventory of finished goods could in-
crease sharply if Circuit City orders smaller quantities than those antici-
pated by the Company, or discontinue doing business with the Company. The
agreement between the Company and Circuit City may be terminated by either
party for any reason upon 30 days advance written notice without penalty. In
the event of an unexpected termination of this agreement, the Company many not
be able to change its operations quickly enough to respond to a significantly
lower level of sales. Also, due to the significant buying power of Circuit
City, pricing of product sold to Circuit City yields a smaller margin than
that realized by the Company on sales to most other customers.

10

ECONOMIC CONDITIONS

The success of the Company's operations depends to a significant extent upon
a number of factors relating to discretionary consumer spending. These factors
include economic conditions such as unemployment levels, business conditions,
interest rates and taxation. The Company's business is also sensitive to con-
sumer spending patterns and consumer preferences. There can be no assurances
that consumer spending and consumer preferences will not be adversely affected
by general social trends and economic conditions, thereby impacting the
Company's revenues, sales and product types. If the demand for consumer elec-
tronics, in particular mid- to high-end audio entertainment systems, were to
decline, the Company's business, financial condition and operating results
could be adversely affected.

COMPETITION

The consumer electronics industry is highly competitive. The Company's prod-
ucts compete directly against other mid- to high-end audio entertainment sys-
tems and indirectly against other functionally similar products which vary
widely in price and quality and which are distributed through a variety of
distribution channels, including audio specialty stores, discount stores, de-
partment stores and mail order firms. The Company competes against a number of
companies, many of which have substantially greater resources than the Compa-
ny. Such competition could have a material adverse effect on the Company's
business, financial condition and operating results. The Company believes that
success in the consumer electronics industry depends, in part, on providing
consumers with unique technologies and features, and on brand name recogni-
tion. There can be no assurance that the Company will be able to continue to
develop such products, or that, if and when introduced, such products will be
accepted by its customers. See "Business--Competition."

TECHNOLOGICAL AND PRODUCT OBSOLESCENCE

The consumer electronics industry has been characterized in recent years by
significant technological changes, frequent new product introductions and
declining end-user prices. Current competitors or new market entrants could
introduce new or enhanced products with features and/or prices which render
the Company's products obsolete or less marketable. The ability of the Company
to compete successfully will depend in large measure on its ability to main-
tain a technically competent research and development staff and to adapt to
technological changes and advances in the industry. There can be no assurance
that the Company will be able to keep pace with the technological or other
competitive demands of the marketplace.

RISKS OF INTERNATIONAL BUSINESS

The Company's business is subject to the risks generally associated with do-
ing business internationally, such as fluctuations in exchange rates, foreign
governmental regulation and changes in economic conditions. These factors,
among others, could influence both the Company's ability to sell its products
in the international market and its ability to procure products or components
from sources outside of the United States. In addition, the Company's business
is subject to the risks associated with the imposition of legislation and reg-
ulations relating to imports, including quotas, duties or taxes and other
charges, restrictions or retaliatory actions on imports to the United States
and other countries in which the Company's products are manufactured or sold.
The Company cannot predict whether the foregoing legislation and regulation
will be imposed by the United States or other countries, nor can it predict
what effect such imposition would have on its business or results of opera-
tions.

During 1996, approximately 54% of the Company's sales were of products manu-
factured by third parties to the Company's specifications. The Company pres-ently sources these products from five different suppliers located in the FarEast. The Company determines whether a product will be manufactured by the
Company or a third party principally on the basis of two factors: 1) the loca-
tion of the sources of parts and subassemblies, and 2) the cost relative to
expected volume of products to be manufactured. During 1995 and the first two
quarters of 1996, the Company was forced, due to cash restraints, to defer
purchases of sourced product and delay payment of certain of its vendors.
These actions resulted in interruptions in the availability of products manu-
factured by the suppliers. Availability of these products is also dependent on
the suppliers' continued cooperation and responsiveness to the Company's
needs. Should the Company be required to supplement or replace a supplier, the
Company believes that there are a number of alternate sources, although the
transition to a new supplier would probably involve added costs and delays.
The Company entered into a relationship with another supplier from whom the
Company expected to source at least two of its new products scheduled for in-
troduction in mid-1996. Availability of these key new products was delayed to
second quarter 1997 due to the continued inability of the supplier to manufac-
ture and ship the products on schedule. See "Risk Factors--Dependence on Out-
side Manufactures," and "Risks of International Business."
Carver's goal is to manufacture as many of its products in the United States
as practical. The Company is currently in discussions with other potential OEM
customers. However, there can be no assurances that these discussions will be
completed favorably or that any OEM business will result from these discus-
sions."

The CD players, and tape decks FOR SURE.... in the end, ALLOT of pieces were coming over pre built. I think most of the Preamps were from China... Whatever amps were "Made in America"... I'd bet most of the parts were coming in from china, and maybe assembled here.
It's sad, but the China issue is getting bigger and bigger without most people seeing it happen.
I build "Custom" stuff, and it's getting harder and harder to be in business with 90% of the country in the "Wal-Mart and Home Depot" state of mind.
Try to tell someone a custom diningroom table is going to cost them $10,000 when they just left Rooms-To-Go and saw something "that's good enough" for $2,500
The next 5-10 years are going to be VERY interesting so see just what happens to us.
and on top of all that... there are fewer and fewre people here in the states, that can even DO quality custom work. The machine shops are fading out, and factoried are all but gone. We really don't make much here anymore, and the things we do still make, everyone bitches about the price.

Toy Maker wrote:The CD players, and tape decks FOR SURE.... in the end, ALLOT of pieces were coming over pre built. I think most of the Preamps were from China... Whatever amps were "Made in America"... I'd bet most of the parts were coming in from china, and maybe assembled here.It's sad, but the China issue is getting bigger and bigger without most people seeing it happen.I build "Custom" stuff, and it's getting harder and harder to be in business with 90% of the country in the "Wal-Mart and Home Depot" state of mind.Try to tell someone a custom diningroom table is going to cost them $10,000 when they just left Rooms-To-Go and saw something "that's good enough" for $2,500 The next 5-10 years are going to be VERY interesting so see just what happens to us.and on top of all that... there are fewer and fewre people here in the states, that can even DO quality custom work. The machine shops are fading out, and factoried are all but gone. We really don't make much here anymore, and the things we do still make, everyone bitches about the price.

I feel for you James cause I know exactly where you are coming from. I was lucky enough to start woodworking when I was till a teenager by watching an older neighbor in his workshop (took damn near 3 years before he let me handle a tool) and to this day I still make most of my furniture. My 18 year old son just doesn't understand my fascination with woodworking and really doesn't understand why it takes longer to sand and finish a piece than it takes to build. That it takes lots of time and time just isn't valued as much as it used to be, so spending 25 hours making a really simple coffee table that winds up costing you maybe $200 in materials and another $250 in time just doesn't cut it today when you can buy a similar looking coffee table made in China for under $100 at most furniture wholesale outlets. But to someone who knows what he is looking at and that it will still be around in 50 years and looking good VS throwing away that $100 chinese coffee table in 5 years, $450 is a bargain. Iif is liiks almost as good to an untrained eye and costs only 30% of the handcrafted thing, then the handcrafted thing MUST be a rip-off. Until they throw it out in a few years ....

We live in a disposable society now thanks to the likes of the good people at WalMart and company.

Totally agree.... when's the last time anyone FIXED a cordless phone... or a Microwave ??
I had one I LOVED, and one day the magnatron died... the part was going to cost me $150... a new microwave at Sears was $179 with warranty... WFT ???